Defending the Defenders of Tax Law Because your reputation deserves a winning defense!

When the IRS asserts preparer penalties under IRC §6694 (understatements due to preparer conduct) or IRC §6695 (procedural and due-diligence failures), the consequences reach far beyond a dollar figure. You face OPR exposure, EFIN/PTIN risk, software and bank-product holds, and potential criminal referral if the facts suggest willfulness. At The Walton Firm—Exclusively Defending Tax Professionals—we move fast, control the record, and fight to protect your ability to practice.

§6694 (Preparer Understatement Penalties)

• Unreasonable Position (§6694(a)): IRS claims the position lacked the required authority/standards (e.g., not supported by substantial authority or, if disclosed, not at least reasonably based).
   
• Willful or Reckless Conduct (§6694(b)): IRS says you knowingly disregarded rules or were reckless with facts/law. This is the high-risk tier and can trigger CI/OPR attention.
   
• Penalty Framework (high level):
   
  • Unreasonable position: greater of a fixed amount or a percentage of fees derived from the engagement.
     
  • Willful/reckless: greater of a higher fixed amount or a higher percentage of fees.
    (Exact thresholds/adjustments change—our first step is to verify current amounts and limit IRS overreach.)

Frequent allegations include:

• Failure to furnish a copy of the return to the taxpayer.
   
• Failure to sign the return.
   
• Failure to furnish a PTIN/identifying number.
   
• Failure to retain copies/lists of returns or to file correct information returns.
   
• Negotiating client refunds (strictly prohibited).
   
• Due Diligence for credits (§6695(g)): EITC, CTC/ACTC/ODC, HOH, AOTC—per-return penalties that are inflation-adjusted annually and add up fast.

• Higher expectations: The IRS assumes you knew (or should have known) the standards.
• Parallel exposure: One letter can cascade into OPR, EFIN suitability, PTIN suspension, and CI leads.
• Reputation risk: Findings can impact software relationships, bank-products, and referrals—your pipeline.

• Lock down communications; we become the point of contact.
   

• Map each challenged position to substantial authority, reasonable basis with disclosure, or more-likely-than-not where applicable.
   

• Retrieve engagement letters, questionnaires, organizer notes, computation workpapers, memos, and contemporaneous emails.
   
• Show client-provided facts, reasonable inquiries, and your reliance (where appropriate).
   
• For §6695(g), produce due-diligence checklists, third-party verifications, residency/school/enrollment proofs, and HOH substantiation workflows.

• Challenge penalty computations (fee base, duplication, stacking across years/clients).
   
• Argue supervisory approval defects, timeliness, and improper aggregation.
   
• Seek concessions, partial abatement, or withdrawal; where needed, posture for Appeals or Tax Court.

• Proactively address OPR, EFIN, and PTIN issues so a civil penalty doesn’t become a practice-ending sanction.
   
• Monitor for CI indicators and adjust strategy to avoid criminal referral.
   

• Patterns in ERC, EITC/CTC/HOH/AOTC claims or amended returns
   
• Inconsistent Schedule C positions (income shifts, expense normalization, basis)
   
• Weak documentation of dependency, residency, and support
   
• Missing signatures/PTINs, poor retention, or staff using shared logins
   
• Marketing/fee issues that look like improper influence on return positions

• Return packets, organizers, due-diligence checklists, file-audit logs
   
• Research memos and authority citations supporting positions
   
• Engagement letters, fee disclosures, and scope/limitation language
   
• Staff training records, supervision policies, role-based access/MFA proof
   
• E-file logs, bank-product reports, complaint/incident registers
   
• Third-party proofs (school records, leases, custody orders, 1098-T, etc.)